Lanxess achieved a strong set of results in the third quarter of 2010 due to strong demand for its synthetic rubber and high-tech plastics. As a result, the specialty chemicals group has lifted for the second time this year its earnings forecast for 2010. It now expects EBITDA pre exceptionals of roughly €900 million for the full year after previously forecasting roughly €800 million in August.

"We are heading for a strong performance in 2010, which clearly reflects our successful strategy of focusing on premium products and the emerging markets," said Axel C. Heitmann, Chairman of the Board of Management of Lanxess AG. "Our results also indicate that we are on track to achieve our goal of approximately €1.4 billion EBITDA pre exceptionals in 2015."

EBITDA pre exceptionals rose 71% year-on-year to €244 million in the third quarter. EBITDA margin pre exceptionals rose to 13.2% from 10.4% a year ago.

Lanxess' top 10 sales products in the third quarter were from the company's synthetic rubber and high-tech plastics activities, which mainly serve the tire and automotive industries. These industries are profiting from the mega-trend mobility, especially in the emerging markets. Lanxess' innovative synthetic rubbers and high-tech plastics not only help improve the safety of tires and automobiles but also make them more fuel-efficient and thus environmentally friendly.

Group sales increased 35% year-on-year to €1.85 billion due to higher volumes in key customer industries, positive currency effects and above all price increases, which fully offset higher raw material costs. The company posted a net income of €118 million in the third quarter in comparison to €23 million a year earlier.

Net debt at the end of the third quarter 2010 rose to €865 million from €794 million from the end of 2009 due to an increase in net working capital. This increase was in line with stronger business activity in general. Operating cash flow before changes in working capital in the first nine months of the year rose to €619 million from €245 million a year earlier.

Performance By Region

Latin America recorded the strongest year-on-year growth in the third quarter, with sales rising 86% year-on-year to €271 million. This was driven primarily by the strong performance of the Performance Butadiene Rubbers and Semi-Crystalline Products business units in Brazil. The region represented 15% of group sales.

Sales in Asia-Pacific rose 21% year-on-year to €408 million and represented 22% of group sales. All segments increased sales year-on-year. Advanced Intermediates recorded the strongest growth, boosted by the integration of the acquired basic chemical activities in India and China. Lanxess' synthetic rubber activities also continued to perform at high levels in the region, driven by increased tire production of Chinese manufacturers.

The EMEA (Europe, Middle East, Africa, excluding Germany) region increased top-line growth by 24% to €503 million driven by the Performance Polymers and Performance Chemicals segments. In particular, the synthetic rubber and high-tech plastics activities achieved significant double-digit sales increases. With this strong recovery, EMEA remained the largest sales region in the third quarter, with 27% of group sales.

Sales in Germany rose 22% to €340 million in the third quarter, representing 18% of group sales.

In North America, sales grew by 60% to €325 million and represented 18% of group sales. The Saltigo business unit profited from a slight improvement in pharmaceutical precursors.

The BRIC countries (Brazil, Russia, India, and China) represented 23% of group sales in the third quarter, in comparison to 22% and 20% in the corresponding quarters in 2009 and 2008.

Performance By Segment

Sales of the Performance Polymers segment rose 50% year-on-year to €986 million in the third quarter, driven by price increases and strong demand notably in Latin America. The segment's EBITDA pre exceptionals jumped to €144 million from €76 million a year earlier, with all business units benefiting from buoyant demand in the tire replacement and OEM automotive industries. This strong performance was achieved despite planned shutdowns for maintenance and expansion of plants.

Third quarter sales in the Advanced Intermediates segment rose 18% year-on-year to €336 million. This increase was due to price increases, the integration of acquired basic chemical activities in India and China and a solid performance by Saltigo in North America. EBITDA pre exceptionals rose 38% year-on-year to €55 million.

Sales of the Performance Chemicals segment rose 21% year-on-year to €515 million in the third quarter, with all seven business units showing sales improvements. EBITDA pre exceptionals rose 24% year-on-year to €83 million. The Leather, Rubber Chemicals and Functional Chemicals business units contributed strongly to the third quarter result. Rubber Chemicals recently acquired two businesses from Flexsys, a division of U.S.-based Solutia Inc., to strengthen its portfolio serving the tire and technical rubber industries.

Outlook

For the business year 2010, Lanxess is now targeting EBITDA pre exceptionals of roughly €900 million, which is nearly double the earnings result achieved in 2009.

As a result of the strong performance expected in 2010, the Board of Management has decided to make a one-off payment to employees totaling around €20 million.

"Our employees worldwide have contributed part of their variable salary towards the cost savings in the crisis year 2009. It is only fair that we now thank them by making a one-time payment in return," said Heitmann.

Heitmann added that the company expects the positive economic trend to continue in the fourth quarter, especially in the tire and automotive industries. "We are in growth mode and will be rolling out our planned investments in the coming months in order to capitalize on the mega-trends - especially mobility - in China, India and Brazil."

A key element of the company's strategy to reach its mid-term earnings target is organic growth. An example is the feasibility study for a new plant in Asia for neodymium polybutadiene rubber (Nd-PBR), which is a key component in the production of high-performance tires. A final decision on the plant will be made in the coming months.

Lanxess is already the leader in synthetic rubber for the high-performance, environmentally friendly "green tire" market - the fastest growing segment in the tire industry. This growth will be given a further boost by future legislation in the European Union and other countries to label tires for their fuel efficiency. In addition, the German government's plans to make the use of winter or all-season tires compulsory in the winter months of the year will have a positive impact on Lanxess sales.